WASHINGTON (MarketWatch) — Treasury Secretary Timothy Geithner on Monday urged global regulators to cooperate and develop common standards to ensure banks trading in the derivatives market have sufficient collateral, or margin, to weather future economic crises.
All derivatives must be exchange-traded. NOT “clearinghoused”, exchange-traded, so that they are double-blinded and the buyers and sellers have no idea who the other party is.
All derivatives must be margined nightly against cash just like every other exchange-traded product.
End of problem. Trade ’em all you want, but:
You can’t screw people.
You can’t claim to have a risk covered when the counterparty cannot pay.
That’s all that needs to be done, it’s what I’ve advocated for years and it is the only solution that will actually work and cannot be gamed.